Deep State Daily: Midterm Election Results, Merkel’s Successor, China’s Reserves Drop

November 7, 2018

Stories We’re Watching

US Midterm Election Results

Americans turned out in record numbers to vote yesterday in what many viewed as a referendum on President Trump. President Trump’s GOP party lost control of the House and strengthened control of the Senate. The election highlights deep partisan divides. Suburban and urban, college-educated voters overwhelmingly rejected the candidates that blue-collar and rural voters embraced. The Senate became more homogeneous, losing 2 Democratic female senators and gaining 2 Republicans, both of whom are white males. Representative Steve King (Iowa), a white nationalist sympathizer, won a ninth term in the House. Gains in the House of Representatives were more diverse: of the 26 seats won by Democrats, 3 went to African-American candidates in majority-white districts. Two candidates will become the first Native American women elected to Congress, and 2 others will become the first Muslim women in Congress. More than 100 women were projected to win seats in the House. At the state level, history was made in many gubernatorial races. X and Z elected the first X.  And, in Kansas and Michigan, women won governorships from Republican incumbents. Democrats narrowed the GOP’s margin of control on state governorships, gaining 7 seats. Major ballot initiatives included: restoring voting rights to felons (FL, passed) and relaxing criminalization of marijuana (MI, MO, UT, OH, WI passed).

Chancellor Angela Merkel Ally Launches Bid to Lead the German CDU Party

In a press conference in Berlin earlier today, Annegret Kramp-Karrenbauer, the general secretary of Germany’s Christian Democratic Union (CDU), launched her campaign as CDU’s party head. Kramp-Karrenbauer is widely viewed as a natural successor to Chancellor Merkel: both leaders share a similar leadership style and political agenda. Kramp-Karrenbauer declared: “This is the end of an era. Angela Merkel has made way for a new chapter in the history of the CDU”. She vowed to work to restore confidence in the CDU, which has lost popular support in the recent state elections. Since announcing her departure from party leadership last month, speculation has grown over Chancellor Merkel’s successor. Kramp-Karrenbauer is one of three main candidates to succeed the chancellor.

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China’s Reserves Fall

China’s central bank data for October was released earlier today. China’s foreign-exchange reserves fell by $33.93B in October to $3.053 trillion, the biggest drop in the past year and a half.  According to a Reuters poll, reserves were expected to drop by only $27B. China’s foreign exchange regulator attributed the fall to global asset price adjustments and a 2.1% rise in the dollar index. Financial analysts believe that both capital outflows and a stronger dollar prompted government intervention to shore up the yuan. Amid rising trade tensions and capital outflows, China is treading cautiously. Chinese central bankers are expected to use their outsized reserves to prevent the yuan from falling below the critical levels, which would likely trigger significant capital flight.

Reuters: UPDATE 2-China Oct FX reserves drop to 18-month low as pressure on yuan grows

The Wall Street Journal: Strong Dollar Hits China’s Foreign-Exchange Reserves

Business Day: Drop in China’s reserves suggests $34bn move to protect renminbi

Bloomberg: China FX Reserves Decline Due to Strong Dollar and Outflows

Trump and Putin to meet in Paris?

Yesterday a Kremlin spokesperson announced that Presidents Putin and Trump will meet briefly in Paris next week. Both are set to attend the celebration at Paris’s Arc de Triomphe. But, on Monday President Trump told reporters that the Paris meeting was unlikely. President Trump reiterated that again today at a White House news conference. He clarified that in lieu of having a formal conversation, they would instead both attend a group lunch on Sunday. President Trump said the two planned to meet on the sidelines of the G20 summit in Buenos Aires later this month. Insiders predict that at the upcoming Paris meeting, French President Emmanuel Macron will discuss the reinstated Iran sanctions, which many in the EU have strongly opposed. Last week officials from France, the EU, Germany, and the UK issued a joint statement condemning the sanctions.

Brazil’s President Bolsonaro Starts to Build Coalition

Brazil’s newly elected far right President Bolsonaro is facing legal challenges as he attempts to usher in the reforms promised on the campaign trail. The Brazilian judiciary and federal police are investigating the role of Bolsonaro’s campaign in an illegal operation that deliberately spread misinformation about Fernando Haddad, Brazil’s other 2018 frontrunner. To make good on his campaign promises to improve the economy, combat crime, and halt corruption, Bolsonaro will have to form coalitions in the Brazilian National Congress. That might be more difficult than anticipated given the charges against his campaign and scrutiny over his recent chief justice appointment. Regional experts are watching closely the role of the military, which appears so far to be heavily involved in the new administration.

From Deep State Radio


Donald Trump said the mid-terms were a huge success (they weren’t), that he did better than other presidents during their first mid-term elections (he didn’t), that he had the touch of gold and only those who ran away from him suffered (not true).  On the other hand, he still has a job today and Jeff Sessions doesn’t.  That’s right, within hours of the election results coming in, the president flipped the script and started to put the squeeze on the Mueller investigation.  What does that mean for the immediate future, the rule of law in America, our general level of nausea and anxiety.  David Sanger of the NY Times, Mike Tomasky of the Daily Beast and Laura Rosenberger, former top campaign aide to Hillary Clinton join us to discuss.  You should join too!

DEEPTECH: Balkanization of the Internet

Recent legislation in Europe, development of Google’s DragonFly, and Russian attempts to build its own internet will most likely balkanize the internet, experts warn. The EU’s General Data Protection Regulation, a massive overhaul of data privacy regulations, went into effect earlier this summer. Google has gone back behind China’s Great Firewall since exiting the country in 2010 over censorship. has been blocked since the exit, but Google is working with Chinese officials to develop Dragonfly, a censorable search engine. Last year Russia announced plans to build its own Internet…  Continue

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